Oil prices are down 20% in a month, here’s why

Oil prices

Oil prices briefly fell below $60 a barrel last week, down more than 20 percent from a high above $75 in late April.

For Nigeria the price of the commodity is important because over 90 percent of export proceeds come from its sale.

The dollar earned is then used to finance up to 80 percent of Federal and State Government expenditure as well to maintain the relative value of the naira (now N360/$1), versus the dollar.

Some of the reasons given by analysts for the fall in prices include:

Rising Shale Production

The market is seeing a lot of supply and demand imbalances due to rising output from shale producers in the United States.

The first official assessment of 2020 oil market will come from the International Energy Agency on Friday (14th).

Many analysts forecast supply will exceed consumption, perhaps by a large margin.

Slowing global economy

The global economy is not a strong as once thought which is leading to falling oil demand.

A Morgan Stanley report published last week argued that “there is growing evidence of a sharper-than-expected slowdown” in oil demand growth, adding that year-on-year increases are “grinding to a halt” across March and April for eight early-reporting countries, including China, India and the U.S.

Prospect of a deepening trade war

U.S President Donald Trump has in the past 2 years launched trade wars against numerous friends and foes alike including China, Mexico, the European Union and Canada.

Oil traders are taking note and becoming ever more jittery.

The Organisation for Economic Cooperation and Development (OECD) estimates that trade tensions have already cost the world close to 1 percentage point of growth. The OECD last month cut its global forecast for 2019 economic expansion to 3.2 percent from 3.9 percent.

Speaking at the St Petersburg International Economic Forum Friday, Russian oil minister Alexander Novak suggested that the trade wars could help push global demand growth this year below 1 million barrels a day.

That would be the lowest level since 2011.

Rising inventory

The latest figures from the U.S Department of Energy showed that oil stockpiles are rising fast a sign of tepid demand and higher production.

Total inventories of crude and refined products soared by 22.44 million barrels in the last week of May — the biggest week-on-week increase in data going back almost 30 years.

Monthly data for the first quarter and initial weekly assessments for April and May also show oil demand for U.S. (the biggest economy in the world) falling year on year in three out of five months so far in 2019 (January, April and May).


Oil has few catalysts to support higher prices for the rest of the year, short of a full blown war in the Middle East.

Oil held near $54 a barrel today after Saudi Arabia said it would work with Russia and other members of the OPEC+ coalition to prevent a slump in prices. Nigeria’s budget is bench-marked against a $60 per barrel oil price.

Nigeria will continue to struggle with revenue shortfalls, as President Muhammadu Buhari begins the first year of his second term in office.

Leave A Reply

Your email address will not be published.